What is a Chattel Mortgage?

A mortgage is a legal contract between a lender and buyer for property. In exchange for property, the buyer makes monthly payments. The lender makes the mortgage a secured loan by requiring the buyer to put up collateral. This means if the buyer defaults on the loan, the lender can take the collateral to cover the cost of the payment deficiency. In most situations, the lender requires the collateral to be the property the buyer purchases. However, a lender may accept another form of collateral to secure the property.

What is a Chattel Mortgage?
A chattel mortgage is a type of loan obtained from a financial institution or bank lender. It uses some sort of movable personal property as collateral to secure a loan for a property. This means chattel mortgage buyers can obtain property without putting that property up for collateral and losing it if they cannot make payments.

Movable Personal Property Definition
Movable personal property are items that can be transferred from one place to another. Examples of chattel property include electronics, cars, boats and trailers. Jewelry and appliances like microwaves are also movable personal property. Homes, mobile homes and buildings are examples of fixed personal property.

How do Chattel Mortgages Work?

A chattel mortgage works like a commercial loan. The property buyer borrows money from the lender to purchase the movable chattel. The lender the makes the loan secured with a mortgage. The legal ownership of the chattel is then transferred from the buyer to the lender at the time of the property’s purchase. Once the mortgage for the fix property is repaid, the movable chattel is no longer required. It is returned to the buyer.

When is Using Chattel Mortgage Better than a Traditional Mortgage?
It is beneficial to use a chattel mortgage when the movable personal property used for collateral is not vital to the buyer’s everyday living. For instance, a buyer should not put up a vehicle for collateral if they need the vehicle to travel back and forth to work and/or school. The terms of the loan are made of an individual basis. However, the lender will give the buyer choices on what personal items can be used as chattel.
A business may want to use a chattel mortgage when they’d rather put up equipment as collateral rather than the commercial property they want to buy.

A Chattel Mortgage has More Benefits than a Traditional Mortgage
A traditional mortgage requires a big risk. A buyer must put of the property they’re buying up for collateral. This means if anything goes wrong and they fail making payment, they could lose their investment or home. A chattel mortgage may be a better alternative to the traditional mortgage depending on the buyer’s finances, chattel they possess or their ability to obtain substantial chattel. The lender, if the buyer falls behind in their mortgage, can take ownership of the movable chattel without touching the property or filing a lien on the property.

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